The Federal Reserve released minutes from its December 9-10 meeting on Tuesday afternoon, pulling back the curtain on intense internal debates that reveal just how uncertain the path forward remains for U.S. monetary policy.

The document confirms what December's unusual 9-3 vote already suggested: the Federal Open Market Committee is grappling with a fundamental tension between two core objectives—keeping inflation moving toward 2% and maintaining the labor market gains of the past several years.

The Policy Debate: Two Camps Emerge

According to the minutes, Fed officials fell into two distinct camps during the December deliberations:

The Inflation Hawks: Some participants emphasized that inflation remains "somewhat elevated" at 2.7% and warned against cutting rates too aggressively. These officials pointed to risks that easing too quickly could allow price pressures to re-accelerate, particularly given uncertainty around potential tariff policies and their impact on import prices.

The Employment Advocates: Other participants expressed growing concern about the labor market, where the unemployment rate has ticked up to 4.6%—its highest level since 2021. These officials argued that the Fed's restrictive stance risks pushing unemployment meaningfully higher, potentially triggering a recession that would hurt American workers far more than slightly elevated inflation.

"Many participants noted that with inflation still above the Committee's 2 percent longer-run goal, the Committee could afford to take a careful approach to further policy adjustments."

— FOMC Minutes, December 2025

Why Three Officials Dissented

The minutes provide context for December's rare three-way split. Governor Stephen Miran dissented in favor of a larger 50 basis point cut, arguing the labor market was deteriorating faster than headline data suggested. Meanwhile, Governors Austan Goolsbee and Jeffrey Schmid voted against any cut at all, preferring to hold rates steady until inflation showed more convincing progress.

This level of disagreement is unusual. The last time three officials dissented from a Fed rate decision was in 2016, and the divisions suggest the committee may struggle to reach consensus in early 2026.

The Data Driving the Debate

Several key data points surfaced repeatedly in the minutes:

  • Inflation: Core PCE remains at 2.7%, well above the Fed's 2% target but down from peaks above 5% in 2022
  • Unemployment: The jobless rate has risen to 4.6% from 3.7% a year ago, though still low by historical standards
  • Wages: Wage growth has moderated to 3.8% annually, easing concerns about a wage-price spiral
  • GDP: The economy grew at a 4.3% annualized pace in Q3 2025, surprising to the upside

The mixed signals explain why officials are struggling to agree: the economy is neither obviously overheating nor clearly cooling.

What Officials Said About 2026

Perhaps most consequential for investors, the minutes revealed that most participants see only one or two rate cuts as appropriate in 2026—a sharp downgrade from expectations just a few months ago.

"Almost all participants" judged that risks to achieving the Fed's employment and inflation goals were "roughly in balance," but several noted that uncertainty around fiscal and trade policy—particularly potential tariff increases—could complicate the outlook.

Market Reaction

Markets showed muted reaction to the minutes, as much of the information had already been telegraphed in Chair Jerome Powell's December press conference and the committee's updated dot plot. The 10-year Treasury yield held steady around 4.11%, while major stock indexes traded slightly lower on the day.

Traders continue to price in roughly two rate cuts for 2026, with the first unlikely before May at the earliest. The CME FedWatch tool shows an 80% probability the Fed holds rates steady at its January 28-29 meeting.

The Powell Succession Factor

Hanging over the December discussions—though not explicitly mentioned in the minutes—is the looming transition at the Fed's helm. Chair Powell's term expires in May, and President Trump is expected to name a successor in early 2026.

Some market observers believe the internal divisions reflect positioning for the post-Powell era, with officials staking out positions that may influence how the new chair approaches policy.

What It Means for You

For everyday Americans, the Fed's internal debates have direct consequences:

Borrowers: Mortgage rates, auto loans, and credit card APRs are likely to remain elevated through at least the first half of 2026. The days of 3% mortgages aren't returning anytime soon.

Savers: High-yield savings accounts and CDs should continue offering attractive returns, with top rates still above 4% APY.

Job Seekers: The Fed's cautious approach suggests policymakers are willing to tolerate modestly higher unemployment to ensure inflation stays under control—a trade-off that could make the job market slightly more competitive in 2026.

The December minutes won't be the last word on the Fed's 2026 strategy, but they offer a clear window into a central bank wrestling with genuinely difficult trade-offs as the new year approaches.